SA’s poultry producers cry fowl
SA’s chicken producers are at loggerheads with importers over proposals for steep tariff increases
SA’s poultry industry is locked into something of a chicken-or-egg conundrum: is the country a net importer of poultry because local producers are inefficient, or have foreign imports rendered them unable to meet demand?
It’s a perennial debate that resurfaced earlier this year, when the SA Poultry Association (Sapa), representing large listed producers such as Astral Foods and RCL Foods, applied to the International Trade Administration Commission of SA (Itac) for a tariff increase. It asked that tariffs be increased to 82% — the maximum allowed under World Trade Organisation rules — from the current 37% for frozen bone-in pieces and 12% for frozen boneless cuts.
The application was prompted by a widening gap between consumption and local production and by steadily increasing imports. According to a recent report from business advisory FTI Consulting, chicken imports doubled between 2010 and 2018. Over much the same period, there has been little increase in local output, says Catherine Grant Makokera, a director at Tutwa Consulting Group.
The result is that SA producers currently meet only about 70% of local demand, says the Association of Meat Importers & Exporters (AMIE). The rest is satisfied through imports — about 540,000t of chicken last year, by Sapa estimates, more than 60% of it from Brazil.
Sapa general manager Izaak Breitenbach believes the tariff increase is necessary because a previous application to Itac underestimated the scale of unfair trade practices. That there are already duties on imports — R9.40 a kg on US imports for "dumping" (selling for less than production cost), and a 35.3% "safeguard duty" against EU bone-in chicken — "illustrates without doubt that the department of trade & industry (DTI) has established that there is dumping and unfair trade … that negatively affects local producers", he says.
"Tariffs won’t solve the whole problem, but they will discourage the volume of imports, which will give the local industry the opportunity to regain some of the lost market share, and encourage investment in growth and expansion."
He believes the issue is not about an inefficient local industry — local producers are "globally competitive" despite lower input costs in countries such as the US and Brazil, and state subsidies in those countries and the EU. It’s about there not being a level playing field if foreign products are dumped.
While Grant Makokera agrees that imports prejudice local producers if they enter markets on unfair terms, she says it is "pretty rare, and SA has systems in place to protect local producers if necessary".
She attributes lacklustre growth in the local poultry sector over the past decade to local producers having decided to invest in brining machinery and focus on profit margins available for brown meat and brined frozen pieces. "This restricted the competitiveness of SA poultry producers in potential export markets where brining is not accepted," she says, including a number of neighbouring countries.
For Unati Speirs, chair of Emerging Black Importers & Exporters SA, the idea that imports hurt local producers is simply "not true".
"In 2018, some local producers posted bumper profits of more than R1.4bn for the year. This perception is being created in order to drive further protection for local producers in an already concentrated and untransformed market," says Speirs.
There does seem to be some consensus on the tariff increase being a bad idea. The AMIE argues that it could hike chicken prices by 32%. It says South Africans’ access to a prime source of protein must outweigh the factional interests of some poultry producers.
What it means
If local producers get their way, poultry prices could rise
Grant Makokera similarly says "it would be detrimental to consumers and downstream producers of processed products if the price of imports was increased significantly". And it’s unlikely to make much difference in building productive capacity. "The local industry has received significant trade protection over many years and this has not [resulted in] any increases in the levels of production or diversification of the industry," she says.
It’s a point reinforced by FTI Consulting, whose own projections suggest "a further increase in tariffs will have a limited impact and come at a cost to the economy".
Inevitably, the government has been thrust into the centre of the controversy. Trade & industry minister Ebrahim Patel, his deputy Nomalungelo Gina, and the minister of agriculture, land reform & rural development, Thoko Didiza, recently met local poultry producers and importers to map out a growth strategy for the sector. And the DTI is working on a poultry master plan to reinvigorate the industry.
It’s expected that building export capacity will form one of the pillars of that plan.
"We need to find a road to a more competitive, inclusive industry employing more South Africans," says Patel.
"There are opportunities for us to sell more chicken meat in other parts of the world, increase our capacity and bring down prices for local consumers."
While Sapa has "identified exports as an opportunity", Breitenbach is cautious. He says a number of African countries protect their own industries by banning imports, while countries such as the US, Brazil and those in the EU exclude SA imports on health grounds. "So you have to ask yourself what the real potential for exports to those territories is," he says.